Our policy prohibits the use of derivative
instruments for trading purposes and we have procedures in place to monitor and control
their use. Our current use of derivative instruments in primarily limited to
interest rate swaps and commodity futures contracts.

Interest rate swaps are entered into with
the objective of converting variable to fixed rate debt, thereby reducing volatility in
borrowing costs. In 1997, we entered into interest rate swaps to effectively
converts a portion of our variable rate bank debt to fixed rate. Payment dates and
the floating rates on the swaps match those of the underlying bank debt. Our credit
risk related to interest rate swaps in dependent upon both the movement in the interest
rates and the possibility of non-payment by swap counterparties. We mitigate credit
by only entering into the swap agreements with high credit-quality counterparties and
netting swap payments within each contract.

Commodity futures contracts traded on
national exchanges are entered into with the objective of reducing food costs. While
this hedging activity has historically been limited, hedging activity could increase in
the future if we believe it would result in lower total costs. Open contracts,
deferred gains and losses and realized gains and losses were not significant for all years
presented.

Market Risk

Our primary market risk exposure with
regard to financial instruments is to changes in interest rates, principally in the United
States. In addition, a portion of our debt is denominated in foreign currencies
which exposes us to market risk associated with exchange rate movements.
Historically, we have not used derivative financial instruments to manage our exposure to
foreign currency rate fluctuations since the market risk associated with our foreign
currency denominated debt was not considered significant.

At December 27, 1997, a hypothetical 100
basis point increase a short-term interest rates would result in a reduction of $33
million in annual pre-tax earnings. The estimated reduction is based upon the
unhedged portion of our variable rate debt and assumes no change in the volume or
composition of debt at December 27, 1997. In addition, the fair value of our
interest rate derivative contracts would increase approximately $25 million. Fair
value was determined by discounting the projected interest rate swap cash flows.

Cautionary Statements

From time to time, in both written reports
and oral statements, we present "forward-looking statements" within the meaning
of Federal and state securities laws, including those identified by such words as
"may," "will," "expect," "believe,"
"plan" and other similar terminology. These "forward-looking
statements" reflect our current expectations and are based upon data available at the
time of the statements. Actual results involve risks and uncertainties, including
both those specific to the Company and those specific to the industry, and could differ
materially from expectations.

Company risks and uncertainties include but
are not limited to the lack of experience of our management group in operating the Company
as an independent, publicly owned business; potentially substantial tax contingencies
related to the Spin-off, which, if they occur, require us to indemnify PepsiCo; our
substantial debt leverage and the attendant potential restriction on our ability to borrow
in the future, as well as the substantial interest expense and principal repayment
obligations; potentials unfavorable variances between estimated and actual liabilities
both as contained in the PepsiCo-prepared balance sheet for the restaurant businesses as
the Spin-off Date and related to the sale of the Non-core Businesses; third party failures
to achieve timely, effective Year 2000 remediation; and the potential inability to
identify qualified franchisees to purchase Company restaurants at prices we consider
appropriate under our strategy to reduce the percentage of system units we operate.

Industry risks and uncertainties include,
but are not limited to, global and local business and economic and political conditions;
legislation and governmental regulation; competition; success of operating initiatives and
advertising and promotional efforts; volatility of commodity costs and increases in
minimum wage and other operating costs; availability and cost of land and construction;
adoption of new or changes in accounting policies and practices; consumer preferences,
spending patterns and demographic trends; political or economic instability in local
markets; and currency exchange rates.